How Different Types of Ownership Structures Could Save

Journal of International Business and Law

Volume 2 | Issue 1 Article 6

2003

How Different Types of Ownership StructuresCould Save Major League Baseball Teams fromContractionBrad Smith

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HOW DIFFERENT TYPES OF OWNERSHIP STRUCTURES COULDSAVE MAJOR LEAGUE BASEBALL TEAMS FROM CONTRACTION

by Brad Smith*

I. INTRODUCTION

Laws concerning ownership structures have played a key role indetermining the success and growth of domestic and international professionalsports leagues and their teams. There are four different types of ownershipstructures found throughout professional sports. These include public in theform of stock ownership, public in the form of community ownership, private,and single entity. When analyzing these different forms of ownership, there areseveral significant issues that leagues and their teams must face and deal with inthe course of their operations to maintain their existence. These issues includeantitrust laws, United States versus Canadian, British, and Japanese laws, leaguerules preventing public/community ownership, and league revenue-sharingplans.' Currently, some domestic (Florida Marlins, Minnesota Twins, andTampa Bay Devil Rays) and international (Montreal Expos) Major LeagueBaseball teams are dealing with the threat of contraction due in large part toproblems with their ownership structures.2 By introducing communityownership, which is currently illegal in professional baseball, into the sport,these teams would likely stand a much better chance of surviving and remainingin the same city without the fears of contraction and the need to move to anothercity.

Therefore, this Note advocates the introduction of communityownership combined with an effective revenue-sharing plan in Major LeagueBaseball to assist in alleviating the financial difficulties plaguing some of itsteams. Part II analyzes recent cases dealing with contraction in baseball and thelong and short-term effects of contraction on the sport. Part III discusses publicownership, where marketable securities are sold on the stock market and public

* Mr. Smith is a student at the Hofstra University School of Law. He wishes to thank ProfessorGrant Hayden for his assistance and guidance throughout the writing of this Note.1 PAUL J. MUCH, 1997 INSIDE THE OWNERSHIP OF PROFESSIONAL SPORTS TEAMs 27-28, (Team

Marketing Report, Inc., Chicago 1997).2 Mark S. Rosentraub, BASEBALL IN THE GLOBAL ERA: ECONOMIC, LEGAL, AND

CULTURAL PERSPECTIVE: Governing Sports in the Global Era: A Political Economy of MaorLeague Baseball and Its Stakeholders, 8 IND. J. GLOBAL LEG. STUD. 121, 142 (2000).

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Smith: How Different Types of Ownership Structures Could Save Major Leag

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companies own the teams, and outlines the advantages and disadvantages ofsuch a structure in professional sports. Part IV explores private ownership,where private investors or privately-held corporations have majority stakes in aprofessional sports franchise. Part V explains the idea of public ownership inthe form of community ownership, where the non-marketable securities are soldand the public (mainly the team's fans) owns the majority of the stock in thefranchise. Part VI concludes this Note by demonstrating the importance ofallowing for community ownership within Major League Baseball and how sucha structure would benefit the sport.

II. CONTRACTION IN MAJOR LEAGUE BASEBALL

Without a doubt, contraction has recently posed a significant threat tosome of Major League Baseball's (MLB's) franchises. In late 2001, rumorsbegan circulating that MLB was considering the possibility of contracting atleast two franchises prior to the 2002 season due to their financial problems.3However, with their new Collective Bargaining Agreement, baseball has tabledcontraction and put off further possibilities of it until 2007.4 However,contraction still poses a very real threat to these teams because they are notreally improving financially and appear to continue facing major economicdifficulties until 2007.

Recently, two court decisions came about as a result of Major LeagueBaseball's decision on November 6, 2001 to contract two teams - -MLB wouldgo from 30 to 28 teams- - for the 2002 seasoni In response to the December 31,2001 decision to move forward with contraction after negotiations with thePlayers Association failed and pursuant to his statutory authority to investigatepossible violations of federal and state antitrust laws, the Attorney General ofthe State of Florida issued civil investigative demands to baseball,Commissioner Bud Selig, the Florida Marlins and Tampa Bay Devil Rays(collectively the "plaintiffs"). 6 The plaintiffs sought declaratory and injunctiverelief against the Attorney General with their claim that the decision to contractwas exempt from federal and state antitrust laws.7

The district court began analyzing the dispute by noting "the businessof baseball is, as it is sometimes phrased, exempt from antitrust laws." g Thedistrict court disagreed with the Attorney General's argument that the exemptiononly applied to the reserve clause and discussed the United States SupremeCourt cases upholding MLB's exemption, including Federal Baseball Club v.

3 Paul Anderson, Recent Major League Baseball Contraction Cases, athttp://www.marquette.eduIaw/sports/sfr/mlbcases.sfr31.html (last visited Jan. 7, 2003).4 ALLAN SIMPSON, BASEBALL AMERICA ALMANAC 2003 8 (Baseball America, Inc., 2003).5 See Anderson, supra note 3.6 See id.

7 See id.8 Major League Baseball v. Butterworth, 181 F. Supp.2d 1316, 1322 (2001)

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National League and Flood v. Kuhn.9 The district court explained that,according to these cases, the business of baseball and the reserve clause wereboth exempt from antitrust laws since 1922, and the Supreme Court has"repeatedly stated that it is up to Congress to overrule this exemption and not thecourts."' 0

The court also said that contraction is part of the business of baseballand that "the basic league structure, including the number of teams, remains anessential feature of the business of baseball, exempt from the antitrust laws.""The court added that because the Florida Antitrust Act explicitly exempts thesame subjects as are exempt under the federal antitrust laws, the decision tocontract was exempt from all federal and state antitrust laws.12 In the end, thecourt granted the plaintiffs motion for a preliminary injunction barring theAttorney General from issuing any civil legislative demands. 3

In another contraction case, the plaintiff, the Metropolitan SportsFacilities Commission (a Minnesota governmental entity operating theMetrodome, home to the Minnesota Twins) sued the defendant, the MinnesotaTwins Major League Baseball Club, seeking a declaratory judgment requiringthe Twins to fulfill its one-year use agreement with the Commission.' 4 TheCommission alleged "that the Twins sought to circumvent their contractualobligations by selling their franchise to Major League Baseball for $250 millionand that the league would then terminate the franchise."' 15 In September 2001,the Twins exercised their lease option with the Commission through the 2002season.16 According to their lease with the Commission, the Twins could optout of their lease "only if theforce majeure clause applied and they were unableto play a home game for a reason beyond the Team's and the Commission'scontrol, including strikes, an act of God, a natural casualty, or a court order."'17

The Commission feared that a decision to contract the Twins fromMLB would cause the team to break its one year lease agreement.18 As a result,on November 6, 2001, the Commission filed a declaratory judgment actionseeking "specific performance of the use agreement and an injunctionpreventing Major League Baseball from interfering with the Commission'scontractual relationships with the Twins."' 19 On November 16, 2001, the districtcourt granted the Commission's motion for a temporary injunction.20

9 See Anderson, supra note 3. Federal Baseball Club v. National League, 259 U.S. 200 (1922),Floodv. Kuhn, 407 U.S. 258 (1972)1o See id.

1 See Butterworth, supra note 8, at 1332.12 See Anderson, supra note 3.13 See id.14 See id.15 Metro. Sports Facilities Comm'n v. Minnesota Twins P'ship, 638 N.W.2d 214, 220 (Ct. App.Minn., 2002).16 See Anderson, supra note 3.17 See Metro. Sports Facilities Comm'n, supra note 15, at 219.is See Anderson, supra note 3.

19 See Metro. Sports Facilities Comm'n, supra note 15, at 219-220.20 See Anderson, supra note 3.

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On appeal by the Twins and MLB, the Minnesota Court Of Appealsaffirmed the district court's decision to grant the temporary injunction and madeseveral specific findings.21 Among the Court of Appeals' conclusions was theirdetermination that it was unlikely that monetary damages would fullycompensate the Commission if the Twins breach the lease agreement since thereare a number of intangible benefits that communities receive by hostingprofessional sports franchises, such as community goodwill and a source offamily entertainment. 22 The Court of Appeals also found that the Commissionestablished a likelihood of success on the merits by demonstrating that: (1) "theTwins exercised their option to lease the Metrodome for the 2002 baseballseason, obligating themselves to play 2002 home games at the Metrodome; 23

(2) "the schedule has been published and the Twins are selling season tickets forthe games;, 24 (3) "for contraction of the Twins to occur, the owner mustvoluntarily agree to sell the team; '25 (4) "elimination of the Twins franchisewould result in a breach of the use agreement. 26 The Minnesota Court ofAppeals concluded that public policy supported issuance of the temporaryinjunction because "local professional sports franchises are an importantcommunity asset and should fulfill their contractual obligations. 27 Thus, theMinnesota Court of Appeals affirmed the decision of the district court.28

Other factors must be considered when analyzing the Major LeagueBaseball contraction issue. To avoid lengthy and possibly unsuccessfullitigation, the teams that would be contracted must also fold voluntarily,meaning that they must regard the sales price being paid to them as attractive.29

From the standpoint of those teams that might fold, contraction will only beattractive "if the price paid is roughly equal to the market value of the franchiseif it were sold as a continuing enterprise., 30 The market price of these teamswould likely be much greater if they can relocate to another city.31 If MLBoffered substantially less than the value of the team in the best alternativelocation, an option available to an owner of a team facing contraction would beto sue baseball for damages "equal to the difference between the price thatbaseball offered and the value of the team elsewhere. 3 Additionally, if MLBfollows its own rules, it may only force a team to fold if it is seriously violatingthe league's rules or not fielding a representative professional team.33

23 See id.

2' See id.2 See Metro. Sports Facilities Comm'n, supra note 15, at 226.24 See id.

2 See id.26 See id.27 See Metro. Sports Facilities Comm'n, supra note 15, at 228.

28 See Anderson, supra note 3.29 Roger G. Noll, The Economics of Baseball Contraction, STANFORD INSTITUTE FOR ECONOMICPOLICY RESEARCH 1, 2 (Jan. 2002).30 See id.31 See id.32 See id. at 4.3 See id.

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However, it is important to realize that there are other important legalramifications when dealing with contraction and there are more costs involvedthan simply buying the team.34 According to Andrew Zimbalist, a Professor ofEconomics at Smith College and author of BASEBALL AND BILLIONS, "AttorneyGenerals in various states looking to get baseball or keep teams would suebaseball on grounds they're a monopoly and restricting output. 3 5 A potentialliability for the owners is the "unexpired portions of the stadium leases of theteams that are being eliminated. 36 If a team breaks a lease, Major LeagueBaseball will likely have to pay damages to the stadium authority.37

Another possible liability if contraction occurs would be "the unexpiredportion of multi-year contracts for players who do not make another major-league roster." 38 Folding two teams will eliminate at least 50 major leaguepositions.39 It is extremely likely that at least some of these players, who will bereleased or demoted to the minor leagues, will file a grievance if they do notmake another major-league roster and their salary commitments in their currentcontracts are not paid.4°

Additionally, further liability will arise from folding twelve minorleague franchises that had working arrangements with the two major leagueteams that were contracted.4l Due to the fact that many minor league teams arevalued in the millions, Major League Baseball faces the possibility of essentiallybeing forced to buy out these twelve minor league clubs as well as two majorleague teams at a total cost of over $50-$75 million. 42 Overall, it's likely to costover $500 million to fold two major league teams.43 Furthermore, MLB mayalso be required to pay damages for breach of contract for each of the stadiumswhere these minor league teams play."4

Besides all of these legal burdens, contraction could have a definitenegative impact on baseball's relations with its fans and players. Some fanscould be "sufficiently repelled" by contraction, and this will result in lowerattendance throughout baseball and fewer people watching fewer games ontelevision. 45 If contraction precipitated another MLB strike, it's likely that thelosses to baseball would be massive among the fans.46 Additionally, contractionwould most likely spark a significant battle with the player's union that wouldhurt the game and cause a rift between management and the players.47 As a

34 See id at 5.35 Chris Isidore, Why 'Out'is the Wrong Call (Oct. 5, 2001), athttp://money.cnn.comi2001/10/05/iving/column-sportsbiz/36 See Noll, supra note 29, at 5.37 See id.38 See id.'9 See id40 See id41 See id. at 6.42 See id.43 See id.4 See id.4 See id. at 8-9.46 See id. at 9.47 See Isidore, supra note 35.

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result, alternative ownership structures, such as community ownership, areviable options for Major League Baseball to explore in order to help inpreventing these significant negative effects of contraction.

III. PUBLIC OWNERSHIP-WHERE MARKETABLE SECURITIES ARE SOLD

A. History/Background

The first type of ownership in professional sports is public ownership,where marketable securities are sold. Professional teams in the United Stateswith this type of ownership included the National Basketball Association's(NBA's) Boston Celtics, National Hockey League's (NHL's) Florida Panthers,and Major League Baseball's (MLB's) Cleveland Indians.48 The Celtics wereowned by a limited partnership, Boston Celtics LP, which was listed on the NewYork Stock Exchange since 1986, and were the last major independently ownedpublic sports franchise until being sold to a group of private investors in 2002.49

Similarly, the Panthers, whose parent holding company, Florida PanthersHoldings Inc., carried out a public offering of shares on the NASDAQ exchangein 1996, were also recently sold to private investors.50 The Indians had an IPOin 1998 and then were purchased by a private investor in 2000. 51 Formerly,Major League Baseball's Baltimore Orioles, the NBA's Cleveland Cavaliers, theNBA's Milwaukee Bucks, and the National Football League's (NFL's) NewEngland Patriots were all publicly owned, but are now privately owned 2

Internationally, British professional soccer teams, Japanese baseball teams, andthe NHL's Edmonton (Canada) Oilers are publicly owned." Formerly, twoother NHL teams were publicly owned-the Toronto (Canada) Maple Leafs andthe Vancouver (Canada) Canucks, but now are privately owned 4

There has been a decade long trend of public company ownership.Public corporations often from the media, entertainment, and communicationsindustries purchased sports franchises throughout the 1990s.5 TribuneCompany bought MLB's Chicago Cubs and News Corp. purchased MLB's LosAngeles Dodgers.5 6 Furthermore, cross-ownership also has increased, especially

48 Eugene J. Stroz, Public Ownership of Sports Franchises: Investment, Novelty, or Fraud?, 53RUTGERS L. REV. 517, 520 (2001).49 Daniel Kaplan, Public firms retreat from owners box, STREET & SMITH's SPORTS BUSINESSJOURNAL, Oct. 7-13, 2002, at 1.50 Scott C. Lascari, The Latest Revenue Generator: Stock Sales By Professional Sports Franchises, 9MARQ. SPORTS L.J. 445, 454 (1999).51 See Stroz, supra note 48, at 528-529.52 See Much, supra note 1, at 15.53 Brian R. Cheffims, Sports Teams and the Stock Market: A Winning Match?, 32 U.B.C. L. REV.271, 276 (1998).'4 See id. at 272.5 See Much, supra note 1, at 27.5 See Kaplan, supra note 49, at 46.

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in the NBA, NHL and MLB, where corporations own a team from each league.57

For example, Cablevision Systems utilizes cross-ownership by owning theNBA's New York Knicks and the NHL's New York Rangers, while ComcastCorp. owns the NBA's Philadelphia 76ers and the NHL's Philadelphia Flyers.58

AOL Time Warner bought the NHL's Atlanta Thrashers, the NBA's AtlantaHawks, and MLB's Atlanta Braves (from Ted Turner), while Walt DisneyCompany purchased the NHL's Anaheim Mighty Ducks and MLB's AnaheimAngels. 59

However, it looks like this decade long trend of public companyownership of professional sports franchises may be reversing. Half of thetwelve U.S. teams owned by public companies are or are on the verge of shiftinginto the hands of private investors.60 Besides the Celtics sale, the Disney Co.hired an investment bank to sell its two Anaheim sports teams and AOL TimeWarner said it was considering selling non-core assets, including their threeAtlanta sports teams.61 In addition, there's speculation that Canadian cableoperator Roger Communications, owner of MLB's Toronto Blue Jays, isconsidering selling the team.62 Major media conglomerates are questioning theircommitment to continuing sports franchise ownership.63 Without a doubt, it'sextremely important for these public companies to assess the advantages anddisadvantages of prolonging their ownership of these sports franchises.

B. Advantages/Reasons For Public Company Ownership of Sports Franchises

There are several reasons why the ownership of teams mightarrange an initial public offering (IPO) of shares.64 Often, the main purpose of"going public" is to raise cash to fund business activities which cannot bereadily financed by other means, such as from profits generated by thecorporation, from the pockets of existing shareholders, or by borrowing.65 Forexample, several professional British soccer teams carried out an IPO to raisecash to improve their existing stadium or to build a new facility.66 Additionally,British soccer teams utilize the stock market to raise funds for other reasons,such as financing the purchase of players in order to "buy success" and

57 See Much, supra note 1, at 91.s See id.59 See Kaplan, supra note 49, at 46.6 See id. at 1. These teams are the NBA's Boston Celtics, MLB's Anaheim Angels, NHL'sAnaheim Mighty Ducks, MLB's Atlanta Braves, NBA's Atlanta Hawks, and NHL's AtlantaThrashers.61 See id. Some believe that Disney is unhappy with the pro sports business because it doesn'tprovide the "visible day-to-day revenue" that a theme park produces. See Paul White, Twentyquestions about contraction, USA TODAY BASEBALL WEEKLY (Nov. 21, 2001), athttp://www.usatoday.com/sports/bbw/200 1-11-14/2001-11-14-contraction.html.62 Ben Silverman, Media owners foul out on pro teams, NEW YORK POST, Nov. 17, 2002, at 30.6 See Kaplan, supra note 49, at 1.64 See Cheffins, supra note 53, at 275.65 Brian R. Cheffins, UK Football Clubs and the Stock Market: Past Developments and FutureProspects: Part 1, 18 COMPANY LAWYER 66 (1997).6 See id. at 67.

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strengthen their teams. However, this buying of players does not occur as oftenin the United States due to the leagues placing tight restrictions on the sale ofplayers for cash.67 Instead, teams fill their rosters by other means, such asthrough trades, farm and minor league clubs, player drafts, and free agency,68

which involves signing a player after his contract with another team hasexpired.69 However, it is quite possible that in the future, MLB, NBA, NFL,and NHL teams might seek to raise funds through an IPO in order to strengthenthe quality of their rosters. 70 Especially in recent times, teams frequently need topay players a substantial signing bonus along with a high annual salary, soselling shares to the public could serve to ensure that the cash required toconclude negotiations is readily available.7' Moreover, U.S. teams also couldraise funds through this form of ownership for new stadium construction.

There are additional factors providing an impetus for teams to raisefunds by selling shares on the stock market. Existing owners of a privately-heldbusiness often desire an "exit option. 72 Due to the fact that equity in a privatecorporation can be difficult to sell, going public is beneficial to these ownersbecause it provides them with an opportunity for shareholders to liquidate atleast part of their investment.73 Besides the stock market providing an "exitoption" where the owners can arrange to have some of their shares distributed aspart of an IPO, it is also possible for these individuals to rely at a later date onthe liquidity that stock exchange listing typically creates and sell equity on themarket.7 a

Large publicly-quoted corporations are also potential buyers of sportsfranchises, due in part to the fact that they are better able than most to pay thehigh "going rate" prices for ownership rights.75 These corporations have accessto personnel, money, and marketing capabilities which provides them with thepotential to operate the franchise more profitably than would be possible underprivate ownership. 76 Moreover, large public corporations can derive significantsubsidiary benefits from sports ownership because a team can complement itsother operations.77 For example, MLB's Atlanta Braves provides valuableprogramming for Time Warner's TBS channel and the Los Angeles Dodgers dothe same for the News Corporation via its Fox television empire.78 The logic

67 See Cheffins, supra note 53, at 276.6 See id.69 See id.70 See id.

"' W.J. Hoffman, Dallas' Head Cowboy Emerges Victorious in a Licensing Showdown with theNFL: National Football League Properties v. Dallas Cowboys Football Club, et al., SETON HALL J.OF SPORTS LAW 255 at 285 (1997).72 G. McDonald, Sports Teams ]POs Score a Following, THE GLOBE & MAIL, June 22, 1998, at B 1.73 See Cheffins, supra note 53, at 277.74 See id.75 J. Colangelo, Is Corporate Ownership Good For Baseball?, THE ARIZONA REPUBLIC, June 28,1997, at C 1.76 See Cheffins, supra note 53, at 278." See id. at 277.n J. Crasnick, Dodger Blue or the Color of Money, THE DENVER POST, June 29, 1997, at C16; seealso P. Farhi, Murdoch Agrees to Buy Dodgers, THE WASHINGTON POST, Sept. 5, 1997, at Cl.

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behind owning professional sports teams for these media companies is that it ischeaper to own teams than to pay continuously rising broadcast fees for theteam's games. 79 Additionally, "by televising the teams in new regional sportschannels, the cable companies could attract subscribers looking for sports whileadding relatively inexpensive programming to their operations." 80

The wealth of a corporate team could improve the viability of aprofessional league because if these wealthy teams are successful, there will bemore successful teams in the league, which will increase the league's overallstrength and help in maintaining a competitive balance. In the NFL, wherethere's a comprehensive revenue-sharing system, a successful team will increasethe "revenue pie" and provide more income for other franchises. 81 Likewise,corporate-owned teams could also increase the value of every individualfranchise. For instance, with the sale of MLB's Los Angeles Dodgers to RupertMurdoch's News Corp. for a reported price of approximately $311 million,analysts estimated that this transaction increased the value of all other MLBfranchises by ten to twenty percent.8 2

In Britain, during the mid- 1 990s, "growing crowds, higher ticket prices,generous sponsorship deals, and a lucrative new television package meant thatrevenues increased substantially" for many U.K. soccer teams causing investorconfidence to be extremely high. 3 As a result, successful IPOs continued in theU.K. throughout late 1996 and early 1997 and investor confidence continued togrow.8 4 Public ownership of U.K. soccer teams at this point seemed to be idealbecause the teams were quite successful and profitable and therefore theinvestors received higher returns, so this was an ideal business model for theseclubs and their investors.

Another advantage of public ownership of soccer teams are the benefitsthat the fans have received. During the 1990s, there was a massive upgrading ofstadiums in English and Scottish soccer leagues, and this was significantlyfinanced by funds raised on the stock market.8 5 As a result, these teams hadrising attendance figures and received positive responses in surveys from thefans.8 6 Additionally, many of these publicly-quoted soccer teams experiencedmore success on the field due, in part, to the availability of a greater amount offunds to get more talented players. For instance, Manchester United and

79 See Kaplan, supra note 49, at 46.8' See id,81 Alan J. Ostfield, Seat License Revenue in the National Football League: Shareable or Not?, 5

SETON HALL J. OF SPORTS LAW 599, 604 (1995).82 Ross Newhan, These Guys Should Know How to Communicate, L.A. TIMES, Mar. 20, 1998, at

W3.83 See Cheffins, supra note 53, at 283.

8 See id.85 Brian R. Cheffins, UK Football Clubs and the Stock Market: Past Developments and FutureProspects: Part 2, 18 COMPANY LAWYER 66 (1997).

16 See id.

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Chelsea, two of England's most successful soccer clubs, are both owned bystock exchange companies.

C. Disadvantages/Problems With Public Company Ownership of SportsFranchises

However, there are numerous factors that serve as deterrents to ownersof professional sports teams from selling shares on the stock market. Onesignificant hurdle is that there is often opposition from league officials.88

Professional leagues, such as MLB, NBA, NHL, and NFL, have policiesregulating the transfer of ownership of teams and owners typically have beendiscouraged from selling a stake in their teams to the public.8 9 While MLBfranchise owners voted to amend league rules to allow their teams to join thestock market, no greater than 49% of a team may be distributed by way of anIPO and voting rights of publicly held shares must be restricted. 90 Basically,baseball's intentions are to ensure that a majority stake remains in private hands.Similarly, while the owners of NHL franchises have expressed willingness toendorse plans to offer shares to the public, the NIHL has a league by-lawrequiring that one shareholder have ultimate voting control.91 For example,Wayne Huizenga complied with these NHL requirements when carrying out hisFlorida Panthers IPO by issuing Class A shares to the public, which was allowedone vote per share, and by holding for himself super-powered Class B shares,each of which had 10,000 votes per share.92

Additionally, the NFL is significantly more firmly opposed to publicownership of teams than the other leagues. 93 The NFL Constitution prohibitscorporate ownership of franchises, and 75% of the NFL's owners must approveall transfers of ownership interests in a NFL team. 94 Furthermore, there is an"uncodified" league policy that prohibits public offerings of shares in NFLclubs.95 However, the legality of such an arrangement prohibiting IPO'sremains "in considerable doubt" and is a significant issue.96 In two cases arisingfrom disputes associated with the sale of the New England Patriots in the late1980's, it was held that enforcement of NFL policies concerning publicownership can violate U.S. antitrust laws as an unreasonable restraint of trade.97

87 See Cheffims, supra note 53, at 289." See id.at 279.89 See Cheffins, supra note 65, at 70.90 See Cheffins, supra note 53, at 279.9' See id92 Robert Bacon, Initial Public Offerings and Professional Sports Teams: The Regulations Work;ButAre Owners andInvestors Listening?, 10 SETON HALL J. SPORTS L. 139, 150 (2000).93 See Cheffins, supra note 53, at 279.94 See id.9' See id.96 See id.97 Sullivan v. National Football League, 34 F.3d 1091 (1V Cir. 1994) (The primary authority for theNFL's prohibition of public ownership violating antitrust law). See also Murray v. National FootballLeague, No. CIV Aa. 94-5971, WL 363911 (E.D. Pa. 1996).

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Furthermore, the NFL has expressed several other concerns, includingfears that publicly owned corporations could potentially provide more capitalthan any current owners. 9 This availability of greater funds would give publiclyowned teams an unfair competitive advantage. 99 As a result, the NFL fears thatif such a competitive advantage exists, a few teams will dominate the League,and this coupled with a lack of interesting rivalries, would cause a decline in fansupport and potentially the demise of the NFL.'0° Therefore, parity is one of themain goals of the NFL, as demonstrated by former NFL Commissioner PeteRozelle saying, "On any given Sunday, any team can beat any other."'' 1

The NFL also worries that public ownership will result in "unduecommercialization of the NFL."'10 2 The League fears that certain corporationswould view owning a professional football franchise as a means of promotingtheir other businesses. 103 For example, if a corporation, such as Disney, boughta football franchise, the NFL fears that the focus of this franchise would shiftfrom promoting football to advertising for Disney and its various products. As aresult, the NFL believes that such ownership would not be in its best interestsbecause the other interests of the owner would take away from the sport as awhole.

Additionally, practical considerations can also play a significant role indiscouraging owners of a professional sports team from carrying out an IPO.1°4The prospect of disclosing a wide range of previously confidential informationcan deter business owners from selling shares on the stock market. 0 5 In orderfor a corporation to carry out an IPO in both the U.S. and Canada, legislation,such as the Securities and Exchange Acts of 1933 and 1934, mandates that itmust disclose a wide range of information. 10 6 Additionally, the corporationowning the team will then have to meet continuing obligations imposed bysecurities laws and the various rules of the stock exchanges on which its equityis traded. 10 7 Due to these requirements, public corporations must providedetailed information on numerous components of their business, including theirsales and profits, the compensation of top executives, and the activities ofcertain key shareholders.10 8 However, league policies discouraging owners fromgoing to the stock market were developed in large part to prevent team financesfrom being inspected by the media, government officials, or players seeking

98 Sullivan , 34 F.3d, at 1100.99 Richard Demak, Corporately Yours, SPORTS ILLUSTRATED, June 3, 1991, at 15.1'0 See id.101 Glenn Dickey, NFL parity means fewer dynasties but better competition, PRO FOOTBALLWEEKLY (Dec. 11, 2000), athttp://www.archive.profootballweekly.com/content/archives/features-2000/dickey 121 100.asp.102 See id.103 See id.104 See Cheffins, supra note 53, at 279.'o5 See id.106 See id.107 See id.

'0o See id.at 280.

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background information for contract negotiations.109 These factors play asignificant role in forcing owners to adjust to life in the public eye which is notalways desirable and could deter owners of individual sports teams fromcarrying out IPOs. 110

Internationally, sports franchises have showed a reluctance to enter thestock market due to a disdain of the "external scrutiny" they would face frominvestors and financial service professionals."' Some privately-held Britishsoccer teams chose to forgo the stock market and not go public due to theirdisinterest in dealing with such heavy scrutiny. 1 2 For instance, in 1995, thechairman of the Glasgow Rangers, a very successful Scottish soccer club, chosenot to issue an IPO and allow his club to become publicly held. 113

Besides these disclosure obligations, another undesirable feature ofpublic ownership and selling shares on the stock market is the cost, in terms ofboth time commitments and financial expenditures. 1

14 When carrying out anIPO, the management team must engage in long and significant discussionsabout the relevant issues concerning ownership with lawyers, accountants, andfinancial advisors. 115 In terms of costs, lawyers, accountants, and investmentbankers all charge fees when they help to organize an IPO, so the owners willhave numerous expenses. 16 For instance, a $5 million IPO might cost theowners $700,000.1 17 Furthermore, these financial costs are ongoing as expenseswill be incurred in meeting reporting and disclosure obligations under securitieslaw and stock exchange rules." Recently, these administrative burdensinvolved with public ownership have discouraged at least one U.S. sports team,the NBA's Sacramento Kings, from following through on plans to carry out anIPO during the late 1990's. 19

An additional factor that often deters public ownership is the problemwith gaining and maintaining shareholder and investor confidence. Movingforward with an IPO is only a feasible option if there are investors willing to buythe shares at a price approaching that sought by the owners of the business. 120 Ifan IP0 is likely to fail due to "adverse investor sentiment," corporations willtypically abandon their plans before actually making the shares available for

'09 Professional Sports Team Stocks Suddenly Seem to be on a Roll, THE TAMPA TRIBUNE, Feb. 18,1997, at B7."o See Cheffins, supra note 53, at 280.

1 See id112 See id.113 j. Ivison, Murray Rules Out Suggestions of Share Flotation for Rangers, THE SCOTSMAN, Oct.

27, 1995, at 21.114 See Cheffins, supra note 53, at 280.15 L. Ginsberg, The Pros and Cons of Taking a Business Public, THE GLOBE & MAIL, Jan. 5, 1998,at BIt.116 See Cheffins, supra note 53, at 280.117 See id. at 280.118 See id119 G. Delsohn, Questions and Answers Surrounding the Kings'Existence in Sacramento, THE

SACRAMENTO BEE, Jan. 23, 1997, at CI.12o See Cheffins, supra note 53, at 282.

12



sale. 21 Adverse investor sentiment posed a problem with public offerings ofprofessional soccer shares in the UK in the late 1980s and early 1990s. 122 Manyfinancial professionals were suspicious of business practices at soccer clubs and,as a result, they strongly doubted whether teams could ever be rated on "normalinvestment criteria" and be "genuine stock market businesses."' 123 Due to thisinherent suspicion of the soccer teams, early IPOs received an unwelcomereception and this caused many U.K. soccer teams to completely shy away fromutilizing the stock market as part of their ownership structure. 124

In the U.S., publicly owned companies have faced difficult challengesin maintaining investor confidence, and therefore both the companies and theirteams have encountered difficulties in advancing this ownership model. Duringthe past two years of stock market recession, Disney and AOL have seen theirstock fall steadily, and as a result, shareholders have called for new strategicdirections and the dumping of non-core assets. 125 One of the main problemsconcerning publicly held companies is that their shareholders normally look forquarterly or annual returns on their investments, but sports franchises tend toappreciate in value over a longer term and therefore the shareholders' desires forhigh returns are not met. 126 Moreover, the teams owned by public held mediacompanies are having problems similar to their parent companies in that AOLTime Warner's three teams combined are not worth much more than MLB'sNew York Yankees and Disney's two teams combined are worth about the sameas MILB's Baltimore Orioles. 127 Thus, many are beginning to believe that thisbusiness model does not fit well with large publicly owned companies, and as aresult, investor confidence continues to spiral downward. 128 Often, thesecompanies' only hopes of recovering and regaining investor confidence is byridding themselves of and selling these sports teams, which add little tocorporate bottom lines and often serve as more of a harm than a benefit to thecompany. 1

29

With broadcasting structures now being pretty much set anddistribution channels built for these companies that have invested in sportsfranchises, there's not much opportunity for growth in the course of theirownership. 130 Compounding this is the fact that subscriber growth is slowing,the airwaves are saturated with new channels, and escalating player salaries areoffsetting the savings from owning the programming content for these mediacompanies.' 3 ' This lack of growth further encourages the belief that the modelno longer works for publicly held media companies and forces many people to

12 See id. at 283.122 See id.123 See Cheffins, supra note 65, at 105.124 See Cheff'ms, supra note 53, at 283.125 See Silverman, supra note 62, at 30.12 See id.127 See id.

'2 See id.129 See Kaplan, supra note 49, at 46.130 See id131 See id

13




be skeptical about the future of publicly owned companies' interest in owningsports franchises.'32

Additionally, when a company goes public, ownership loses much ofthe flexibility that autonomous owners of private companies are entitled toenjoy.'33 Furthermore, once the company goes public, the owner will relinquisha certain amount of control over the business because investors and shareholderswill also now have a say in the form of voting rights and ownership of shares. 134

Depending on how much control the owner relinquishes, the company couldbecome susceptible to a hostile takeover, which would be quite troubling to theowner of a sports franchise.' 35

D. Application of Public Company Ownership to Major League Baseball

In applying the advantages and disadvantages of public ownership inthe form of IPO's or public company ownership to Major League Baseball'steams that are currently facing the threat of contraction, it's important tounderstand that they are not the most sound investment at this point. These areteams in significant debt with little hope of making a significant amount ofmoney, with a generally low fan base, and on the verge of either beingeliminated from baseball, managed by baseball (as the Expos were in 2001), orbeing bought by new owners with the potential of moving them to a new city.Ideally, one would say that they should just have an IPO or hope to get boughtand have their operations run by a publicly owned company with a significantfinancial backing where a substantial amount of funds would be provided andthe possibility for construction of a new stadium to attract more fans wouldexist.

However, for these three teams, the situation is just not that easy tosolve. While MLB now allows their teams to join the stock market, no morethan 49% of a team can be distributed by way of an IPO and voting rights ofpublicly held shares must be restricted, thus reinforcing the league's notions ofleaving a majority share in private hands. 136 So, clearly, even though the leagueamended rules to allow their teams to go public and join the stock market, itspreference still seems to be private ownership by local individuals. 3 7 MLB is"concerned with the interlocking of the broadcast industry and team ownership"and looks unfavorably upon publicly traded forms of ownership that may have"fiduciary responsibilities that conflict with the interest of baseball, and thatrequire public financial disclosure."'' 3 8 They want owners who are committed to

132 See id1 See Stroz, supra note 48, at 522.134 See id.15 See id.136 See Cheffins, supra note 53, at 279.137 See id139 See Much, supra note 1, at 27.

14



operating the club "in the interest of baseball and not for outside businessactivities" in their public corporations. 3 9

Another significant problem that these three teams will face inattempting to find public ownership is their lack of public appeal. 40 Similar tothe British soccer situation in the late 1980s and early 1990s, there wouldpresumably be a substantial amount of adverse investor sentiment.' 4' Whether itbe an investor investing in an IPO or a public corporation buying the entireteam, these teams seemingly would not appeal to them because a vast amount oftime, money, and resources will need to be utilized just to keep the teams afloat,notwithstanding making a profit. It does not seem as if too many investorswould be willing to buy into any of these three teams knowing that each havebeen struggling for several years, and a lot of additional money will be neededjust to keep them running. Without a doubt, each of these teams are a huge riskto invest in because of their continuous fitancial problems and the negativesentiment that's been surrounding their operations for years will likely dissuademany potential buyers. Additionally, investors also are probably well aware thatthese investments will not yield high returns making them further skeptical andprobably unsatisfied with the thought of investing in either the Marlins, Twins,or Expos.

IV. PRIVATE OWNERSHIP


In the United States, private ownership by either individual investors orprivately-held corporations is the most popular form of ownership amongprofessional sports teams. 42 Additionally, unincorporated partnershipscomposed of a handful of investors also are common for private ownershipstructures. "4

3 According to Forbes, individual investors all privately own theteams with the highest franchise values in their respective sports. 44 In MajorLeague Baseball, George Steinbrenner's New York Yankees are worth $730million; in the National Basketball Association, Jerry Buss' Los Angeles Lakersare worth $403 million; in the National Football League, Daniel Snyder'sWashington Redskins are worth $845 million; and in the National HockeyLeague, Michael Ilitch's Detroit Red Wings are worth $266 million. 45

Internationally, some Japanese professional baseball teams and Britishprofessional soccer teams are owned by privately-held corporations.

139 See id.140 See Stroz, supra note 48, at 523.141 See Cheffins, supra note 53, at 283.142 See Chefflms, supra note 53, at 272.143 See id.

144 Forbes Franchise Values (Dec. 12, 2002), athttp://www.espn.go.com/sportsbusiness/s/forbes.htm].145 See id.

15




B. Advantages/Reasons For Private Ownership of Sports Franchises

There are several benefits and advantages that private ownership allowsfor in professional sports. Often, private investors have a substantial amount ofcapital, time, and managerial talent that allows them to successfully deal withthe business logistics of professional sports.14 6 Private investors often have avast amount of past business experience, and therefore, are more capable ofunderstanding the intricacies involved in owning a franchise. Usually, unlikepublic corporations, the main focus of these individual investors is on the sportsteam, and so they have a "long-term economic interest in a team's vitality andwork to ensure its continuity."'' 47 Additionally, private investors have moreautonomy and freedom to make decisions on operating the team, as opposed topublic corporations, because there are not as many stakeholders with a directfinancial interest in the private sector.148 The executives of a privately-held firmhave a greater ability to dictate corporate policy and have more control over thedecision-making process than they would if they were part of a publiccompany.

149

Additionally, as long as professional sports teams are held via aprivately-held corporation or partnership, financial statements can remainprivate. 10 Not having to disclose this financial information is a highly valuedfeature of private ownership and deters unwanted publicity for the owners.' 51

By remaining private, owners do not have to worry about investor sentiment andconfidence.152 Private owners do not have to worry that investors might not beinterested in buying shares in the franchise because this is not an option sincethe team is privately owned. 53 Furthermore, professional sports leagues,especially MLB and the NFL, favor private ownership over public ownership, asseen with rules either prohibiting or severely limiting public ownership in theirsports.

154

C. Disadvantages/Problems With Private Ownership of Sports Franchises

A problem that often plagues private ownership is greedy individualsowning these franchises. In the course of their ownership, private owners oftenwant to minimize costs, pay players as little as possible, and charge fans thehighest ticket fees possible to attend games. 155 Additionally, these private

146 See Rosentraub, supra note 2, at 130.147 See id148 See Bacon, supra note 92, at 161.149 See Cheffins, supra note 53, at 281.

0 See id. at 280.151 See id.152 See id. at 282.153 See id.154 See Cheffins, supra note 53, at 279.155 See Rosentraub, supra note 2, at 130.

16



owners are interested in maintaining "sovereignty over a particular market area"and not allowing other teams from the same sport into their geographic areabecause they fear that these franchises might be competing for the same fans. 56

As a result, fans and the general public as a whole view those private owners asbeing greedy and only interested in maximizing their profits without keeping thecommunity's interests in mind. Furthermore, by continuously raising the ticketprices, they tend to hurt attendance because more and more people cannot affordor are not interested in coming to multiple games for such a steep price.

Often, it is much more difficult for private owners to raise capital fortheir franchises. Public companies usually have an easier time raising morecapital and incurring more debt in the course of their operations because theyhave additional means, such as stock, to use as collateral during difficultfinancial periods or when they need extra capital.' 57 For example, raising fundsto construct new stadiums or improve their existing ones is usually easier forpublic corporations because they can issue shares of stock to the public to assistin financing these projects. 58 Private investors on the other hand often need toreach into their own personal funds to finance these expensive projects andmight not have the necessary capital available.

Additionally, as a private investor, you do not have an "exit option"and cannot use the stock market to cash in on a portion of your investment. 159

Equity in a privately-held corporation can be extremely difficult to sell, and as aresult, it is much tougher to liquidate your investment.' 60 Private owners cannotuse the stock market as an "exit option" and distribute their shares as part of apublic offering. 161 Additionally, private owners and those in partnerships areindividually liable for all debts, which can often be quite costly to theseinvestors. 161

D. Application of Private Ownership to Major League Baseball

Without a doubt, Major League Baseball favors private ownership, inthe form of local individual owners, over all other ownership structures. 6 3 Asindicated by certain criteria provided by MLB, one sees their "intentions ofkeeping the interests of baseball above that of outside interests, and maintainingbaseball's self-governance, profitability, and limited financial disclosure."'164

These criteria include the owner being committed to operating the club in thebest interests of baseball and not to support outside business activities.165

'56 See id.157 See Cheffins, supra note 53, at 275.158 See id.

9 See id at 277.'60 See id.161 See id.162 See Bacon, supra note 92, at 162.163 See Much, supra note 1, at 27."6 See id.165 See id.

17




Basically, the League is expressing their desire for private owners because it isconcerned with the possible ramifications of "the interlocking of the broadcastindustry and team ownership."'166 Furthermore, Major League Baseball does notwant any of the teams' organizational and management structures conflictingwith the interests of baseball.167 The League looks unfavorably upon trusts,non-profit, and publicly traded forms of ownership that may have fiduciaryresponsibilities conflicting with baseball's interests, and requiring publicfinancial disclosure. 68 With private ownership, the possibility of publicownership requiring financial disclosure is eliminated.

The demands of some private owners in Major League Baseball forpublic assistance have reached new levels in that they insist on subsidies fromtheir host communities greater than their teams are worth. 16 9 For example,Minnesota Twins' owner Carl Pohlad attempted to obtain $250 million from theMinnesota state legislature for a state-of-the-art retractable roof stadium, eventhough the team is only worth about $125 million. 70 As a result, communitiesare wondering why they should give these private owners more money than theteam is actually worth simply to keep the franchise in town for another 10 to 15years, instead of the fans and the community buying the franchise themselvesand ensuring its continued existence in the same place.' 7' These same questionshave been raised in Florida and Montreal with private owners asking thecommunity to provide more money than the franchise is worth. This makes themlook greedy and merely interested in owning the franchise to make a profit at theexpense of their community and the fans. Unfortunately, these maneuvers byprivate owners often cause the fans to become upset and disinterested in thegame of baseball because they feel that these franchises are taking advantage ofthem. 1

72

V. PUBLIC OWNERSHIP-COMMUNITY OWNERSHIP


Public ownership also exists in the form of community ownership,where the main difference is that non-marketable securities are sold and thepublic owns the majority of the stock. Essentially, community ownership beginswith a majority interest (70-75% of the team) of non-tradable stock being sold to

166 See id.167 See id.

'6 See id.169 Daniel Kraker and David Morris, Roots, Roots, Roots for the Home Team (Apr. 1998), athttp://www.newrules.org/resources/rootroots.html.170 See id.

171 Kraker and Morris, Don't Bribe 'Em. Buy 'Em (Nov. 1998), athttp://www.newrules.org/resources/buyem.html.172 See id.

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the general public. 173 A managing interest of approximately 25-30% is then soldto a private management group or investor who operates the team, whilecovering all the expenses and losses and retaining all the profits. 74 The team'sbylaws are then changed to require a super majority (3/4) of voters to move theteam, thereby rooting the team to the city and its fans. 175 This whole process isbased on a market test, where if the public does not respond within a year andbuy a threshold interest in the team, then it is quite apparent that the team willnot survive in its current city even with a new stadium. 176 If the sale to thepublic does not work, the team is put back on the market and sold to anotherprivate or public investor, and the city recoups any initial investment that itmight have made. 17

7

In the United States, the NFL's Green Bay Packers utilize thiscommunity ownership structure. 78 Additionally, both the MLB's Kansas CityRoyals and Minnesota Twins have showed interest in utilizing this form ofownership. 79 Internationally, three teams in the Canadian Football League(CFL) --the Saskatchewan Roughriders, Winnipeg Blue Bombers, and theEdmonton Eskimos- - use community ownership structures to operate theirteams. '°

Within the past decade, there have been several attempts on both thestate and federal level to introduce legislation promoting the expansion andgrowth of community ownership in professional sports. In 1997, a bill wasintroduced in Minnesota that enabled the state to purchase baseball's Twins, oneof the teams facing the threat of contraction, and transfer the club to a nonprofitorganization, which would have given a year to sell shares of stock in theteam. l18 However, the bill never came up for a vote. 2 More recently, therewas the introduction of the New York Sports Fan Protection Act, which is a billthat would establish a State Sports Authority that could condemn a franchisethrough eminent domain and sell shares in the team to the public if either thecost of a stadium to the public exceeded the value of the franchise or thefranchise took action to move from the state of New York.18 3

Furthermore, numerous pieces of legislation were introduced on thefederal level promoting the idea of community ownership within professional

173 Lawmakers: You Can Own the Twins (Nov. 20, 2001), athttp://www.channel4000.comsports/stories/sports-twins- 108682720011120-121117.html.174 Kraker and Morris, The Myth of New Stadium Profits-Is it Time to Consider the Green BayAlternative?, SHEPHERD ExPRESS (Feb. 12, 1998), at http://www.shepherd-express.com/shepherd/19/07/headlines/cover-story.html.175 See id.176 See id.177 See id.178 Kraker and Morris, Rooting the Home Team: Why the Packers Won't Leave and Why the Browns

Did, THE AMERICAN PROSPECT, Sept.-Oct. 1998, at 38.179 See id at 42.18o See Kraker and Morris, supra note 169.181 See Kraker and Morris, supra note 171.182 See id183 To view a summary of the New York Sports Fan Protection Act, see

http://www.newrules.org/sports/newyork.htn-l (last visited Oct. 13, 2002).

104

19




sports. The Give Fans a Chance Act of 2001 is a federal bill, which wouldremove a professional league's broadcast-rights antitrust exemption if thatleague prohibited a community or its fans from owning the team. 184 Insubstance, the Act would forbid leagues from prohibiting community ownership.Additionally, the Fairness in Antitrust in National Sports (FANS) Act of 2001was introduced in response to Major League Baseball's attempt to contract andeliminate the Minnesota Twins.'8 5 The purpose of this act is to amend theClayton Act to make the antitrust laws applicable to the elimination or relocationof MLB franchises. 86 It would eliminate MLB's antitrust exemption withregard to the elimination or relocation of major league baseball franchises.8 7

Currently, in the United States, the NFL's Green Bay Packers, whowere one of the league's best teams in the 1960's and throughout the 1990's, 188

are the only professional sports team owned by their fans.1 89 The Packers'community ownership structure predates NFL rules prohibiting publicownership. Incorporated in 1923 as a private, non-profit, tax-exemptorganization, Article I of the Packers' bylaws states, "this association shall be acommunity project, intended to promote community welfare ... its purposesshall be exclusively charitable."' 9 In 1935, the Packers were reorganized as aWisconsin non-profit stock corporation.19' At this time, the Green Bay PackersCorporation was authorized to issue 300 shares of common stock.192 Then, in1950, when the Packers Corporation wanted to ensure its ability to remain along-term competitor in the NFL, the Corporation's stockholders authorized it toissue up to 10,000 common shares of stock at $25 per share, to raise funds forthe Packers. 93 The Corporation's restated articles of incorporation stated thatno stockholder could own more than 200 shares and that the stock would pay nodividends.' 94 From 1950 to November 1997, the Packers Corporation had

184 For a link to the text of the Give Fans a Chance Act, seehttp://www.newrules.org/sports/fans.html (last visited Oct. 13, 2002).185 See id.186 See id The Sherman Act is a federal antitrust law that was enacted in 1890 which "prohibitsmonopolization and conspiracies to restrain trade." The Clayton Act is a 1914 amendment thatstrengthened the Sherman Act by making it illegal for firms to engage in "certain anticompetitivebusiness practices," such as "price discrimination, exclusive dealing, tying contracts, stockacquisition of competing companies, and interlocking directorates." See Chapter 13:Antitrust andRegulation, at http://www.uwlax.edu/faculty/knowles/ecol 10/Tucker_13.rtf(last visited Feb. 13,2003).187 MLB in Congress, 2001-2002, at http://www.roadsidephotos.com/baseball/02-3cong.html (lastvisited Jan. 8, 2003).188 The Green Bay Packers, at http://www.newrules.org/sports/packers.htm (last visited Oct. 14,2002).189 See id.190 See id.191 Lynn Reynolds Hartel, Community-Based Ownership of a National Football League Franchise:The Answer to Relocation and Taxpayer Financing of NFL Teams, 18 LOY. L.A. ENT. L.J. 589, 593(1998).192 See id.193 See id.

'94 See id. at 594.

20



approximately 1900 shareholders owning 4627 shares. 195 Then, in November1997, the Packers' shareholders approved the issuance of new stock inaccordance with a 1000-for-i stock split. 196 In response to this new stockoffering, 106,000 Packers' fans bought stock at $200 per share, which generated$24 million for the Corporation. 97 However, this new stock is largely"ceremonial" because the new shareholders have diluted voting rights, nopossibility of profits, and receive no other special benefits. 198

A board of directors that is elected by the shareholders is in charge ofmanaging the business operations of the team. 99 The board must approve allsubstantive changes, such as upgrading the scoreboards at Lambeau Field,adding luxury boxes to the stadium, and building a new indoor practicefacility. 2°° Both President Bob Harlan and Executive Vice-President/GeneralManager John Fabry have the authority to make all football operationsdecisions. 1

One of the most significant features of the Packers' bylaws is that amajority vote of the shareholders is necessary to relocate the franchise. 20 2 Withover 90% of the shareholders residing in Green Bay, all most likely avid Packersfans, it is extremely unlikely that any shareholder would ever vote to relocate theteam. 0 3 As a result, community based ownership essentially serves as amechanism for preventing teams from moving out of town. The team can onlymove through dissolution, and if this occurs the shareholders get back theamount of money that they invested.2° If a shareholder ever decides to sell hisor her stock, the Packers' bylaws state that the shares must be offered back tothe corporation first.20 5 As a result of their corporate structure, the publiclyowned Green Bay Packers have become the most stable team in the NFL and thecity of Green Bay has never faced the threat of the team relocating.20 6

B. Advantages/Reasons For Community Ownership of Sports Franchises

There are several benefits and advantages that a community-basedownership structure allows for, which are not inherent to the other ownershipstructures in professional sports. Community owned franchises could help inreversing the recent trend of franchise relocation that plays a major role in

195 See id

'96 See id197 See id.198 See id199 See Packers, supra note 188.200 See Hartel, supra note 191, at 594.

20' See id202 See id. at 595.

2 See id.204 See Packers, supra note 188.

205 See Hartel, supra note 191, at 595.2 David Nielsen, Packer Envy: Green Bay Fans Don't Have to Worry About Their Team Moving-

They Own It, WASHINGTON TIMES, Dec. 20, 1995, at BI.

106

21




undermining the stability of these professional leagues.20 7 The "uncheckedmobility" of these teams often hurt their respective sports by disappointing fansthroughout the world and their host cities as well.20 8 Furthermore, frequentfranchise relocation undermines the sport's "fan base, destroys team loyalties,eliminates team rivalries, and increases the public sentiment that team ownersare greedy and self-motivated. ' '2

09 However, the certificate of incorporation and

bylaws of a community owned corporate franchise could play a significant rolein reversing this trend, because they could specifically state the conditions underwhich the franchise would be allowed to move or be sold.210 As seen with thePackers, teams owned by residents of their community are highly unlikely tomove them away from that community. 2 1

1

Moreover, community-based ownership of professional sports teams isdesirable for the cities, their taxpayers, and the fans since this corporate entity islargely self-funded, and it is not dependent on the host cities for hugesubsidies. 212 Cities use numerous public-financing mechanisms for fundingconstruction of new stadiums or renovations of existing facilities, and ultimatelythe taxpayers bear the financial burden of all these subsidies.2 13 Unfortunately,host cities bear the huge subsidy risk and in many instances are not rewarded fortheir substantial economic investment when teams leave for a better deal that isoffered by another city. 214 However, community-owned franchises wouldbasically shift the burden from taxpayers to individuals who are interested inowning a piece of a team in a particular community. 21 5 This shift in financingincreases the likelihood of a franchise staying in one city because the team'sshareholders are "highly motivated to keep the team as a permanent fixture intheir city" due to their investment. 2 16

Additionally, community ownership often provides better opportunitiesand greater ability for a city to start-up or acquire a professional franchise. Sucha form of ownership provides a way for cities that have a "large potential pool offan support" to overcome opposition to "whatever amount of public fundingmay be necessary to acquire a team. 21 7 Such an alternative mechanism "withits inherent high degree of fan support and largely self-funded nature, wouldplay a significant role in relieving the problems that cities face in providing theappropriate level of subsidies necessary to attract a professional sports

"07 Richard Sandomir, Owners' New Strategy: Take The Team and Run, N.Y. TIMEs, Jan. 14, 1996,§ 8, at 1.208 See Hartel, supra note 191, at 600; see also Katherine C. Leone, No Team, No Peace: FranchiseFree Agency in the National Football League, 97 COLUM. L. REv. 473, 476 (1997).209 See Leone, supra note 208, at 491.210 See Hartel, supra note 191, at 600.211 See id at 601.212 See id.213 See Leone, supra note 208, at 485.214 See Hartel, supra note 191, at 602; see also Leone, supra note 208, at 491-92.215 See Hartel at 602.216 See id.217 See id.

22



franchise.2t 8 In large part, the fans would provide the appropriate fundingthrough their investments.

Additionally, in cities, where the team is a "permanent, rooted civicasset," fans and citizens are seemingly much more willing to financially supporttheir team.219 If the fans receive a commitment from the team, they are muchmore likely to "return loyalty with loyalty," as the fans of the Green BayPackers have overwhelmingly demonstrated throughout their history. 220

Most importantly, community-owned franchises provide practicalsolutions to the main obstacles that cities face when trying to encourage theleague to grant its area a new franchise.221 Community-based ownershipprovides fans with the "unique opportunity to build a team through their ownresources and to become owners of the franchise. 222 Moreover, with suchownership rights comes "pride, love of the game, and loyalty" to theprofessional league.223 Additionally, community-owned teams would becomepermanent fixtures in the area, similar to the Green Bay Packers, and this wouldcreate substantial benefits for the league by increasing its stability. 224 Such aform of ownership would also play an important role in reducing the existinggreed in the league by the current owners and would also allow the fans, whohave been long time supporters of the franchise, to have a role in owning it. Thiswould help keep the fans interested and loyal to their favorite teams.

C. Disadvantages/Problems With Community Ownership of Sports Franchises

When attempting to implement community ownership, the major hurdlethat must be overcome is professional sports league rules prohibiting such formsof ownership. All major sports leagues -baseball, basketball, football, andhockey- either formally or informally prohibit community ownership. In 1961,after "grandfathering" in the Packers' nonprofit structure, the NFL formallybanned community ownership at the same time it adopted a radical revenue-sharing plan, which distributes all revenue from merchandise, television, andgate receipts equally among all of its teams. 225 In the mid-1980's, Major LeagueBaseball outlawed public/community ownership through an informal resolutionwhen Joan Kroc wanted to donate her baseball team, the Padres, to the City ofSan Diego.226 Furthermore, current MLB Commissioner Bud Selig has vowedto "kill any community ownership proposal because it would be an awkwardarrangement for the league. 227

218 See id. at 604.219 See Packers, supra note 188.

2'o See id.21 See Hartel, supra note 191, at 627.222 See id.223 See id.224 See id.225 See Kraker and Morris, supra note 178, at 42.226 See Kraker and Morris, supra note 169, at http://www.newrules.org/resources/rootroots.html.27 See Kraker and Morris, supra note 178, at 42.

23




However, in the case of the NFL, there have been slight glimmers ofhope of the league challenging their policy banning community ownership. Thispolicy was challenged in Sullivan v. NFL, were William H. Sullivan, the thenowner of the New England Patriots, brought an action against the NFL allegingthat the league violated antitrust laws by restricting owners of NFL franchisesfrom selling shares in their team to the public. 228 Sullivan, wanting to offer 49%of the team to the public in the form of publicly traded stock to help inovercoming financial difficulties and increasing debt burdens, requested that theNFL either waive its public ownership prohibition or modify it to allow forcertain controlled sales to the public of minority interests in NFL franchises.229

As a result of the NFL failing to act on Sullivan's request, he brought a lawsuit,where the U.S. District Court for the District of Massachusetts entered judgmentfor Sullivan, ruling that the NFL prohibition of public ownership violated theSherman Act.230 The Court of Appeals for the First Circuit held that Sullivanhad "presented sufficient evidence of harm to competition in the sale ofownership interests in NFL clubs."23'

However, the First Circuit vacated and remanded the judgment of theU.S. District Court in this case due to numerous prejudicial trial errors.2 32 Sincethe Sullivan decision, no other court has decided the issue of whether the NFLpolicy prohibiting public ownership of NFL teams violates Section 1 of theSherman Act, which prohibits "every agreement, conspiracy, or other concertedactivity in restraint of trade. 233 As a result, the First Circuit's antitrust analysisof the NFL's prohibition of public ownership for existing NFL franchisesremains "the primary authority by which to challenge the NFL's effectiveprohibition of public ownership for new NFL franchises. 234

The Supreme Court has developed two tests to determine if theSherman Act has been violated: 1) the "per se" test and 2) the "rule of reason"test.235 Under the "per se" test, a court will hold a business practice "per se"unlawful only when the court can predict with certainty that the restraint causedby the business practice violates the basic purposes of the Sherman Act.236

Courts reserve "per se" invalidity for blatant restraints of trade that further nobasic purpose other than the impairment of competition.237 Such unlawful tradeand business practices, where the court will not look at the possible businessjustification for the restraint, include group boycotts, 23 price fixing,239

228 See Sullivan, supra note 98, at 1095.229 See id. at 1095-1096.230 See id. at 1091, 1096.

23' See id. at 1091.232 See id.

233 See Hartel, supra note 191, at 606.24 See id.235 NCAA v. Board of Regents, 468 U.S. 85 (1984).236 Los Angeles Mem'l Coliseum Comm'n v. NFL, 726 F.2d 1381, 1387 (9t Cir. 1984) [hereinafterRaiders] (citing United States v. Topco Assoc., Inc., 405 U.S. 596 (1972)).237 See Raiders, 726 F.2d at 1387.238 See, e.g., Silver v. New York Stock Exch., 373 U.S. 341 (1963).239 See, e.g., United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940).

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horizontal market division, 240 tying arrangements, 241 and concerted refusals todeal .242

Restraints that do not fall within the "per se" category are insteadanalyzed under the "rule of reason" test.243 The "rule of reason" is a particularlyappropriate test when a court is confronted with an industry requiringcooperation among its members in order to compete in the marketplace. 24 Dueto the unique character of professional sports,245 throughout history, courts havegenerally rejected the application of the "per se" test and instead have appliedthe "rule of reason" test in deciding antitrust suits concerning Leaguepractices.

246

The "rule of reason" test is a balancing test requiring the fact-finder todecide whether, under all the circumstances of the case, the agreement "imposesan unreasonable restraint on competition. '" 247 Typically, an activity restrainstrade if its anti-competitive effects outweigh its legitimate businessjustifications. 248 Before balancing the positive and negative effects oncompetition of this activity, the plaintiff must "show that the challenged conductrestrains competition. 249 In challenging the NFL's prohibition ofpublic/community ownership, the plaintiff must prove three elements in order toestablish a cause of action °50 These three elements include: (1) that there wasan agreement between two or more persons or distinct business entities; 251 (2)the agreement is intended to harm or unreasonably restrain competition;252 and(3) the agreement actually causes injury to competition.253

240 See, e.g., United States v. Topco Assocs., 405 U.S. 596 (1972).24 See, e.g., International Salt Co. v. United States, 332 U.S. 392 (1947).242 See, e.g., Paramount Famous Lasky Corp. v. United States, 282 U.S. 30 (1930).243 Standard Oil Co. v. United States, 221 U.S. 1 (1911).244 See Raiders, supra note 237, at 1389, cert. deniedsub nom. Oakland-Alameda County Coliseum,

Inc. v. Oakland Raiders, Ltd., 469 U.S. 990 (1984).245 Lewis S. Kurlantzick, Thoughts on Professional Sports and the Antitrust Law: Los Angeles

Memorial Coliseum Comm 'n v. NFL, 15 CoNN. L. REV. 183 (1983). (Discussing the impact of theRaiders case, Professor Kurlantzick notes: "Professional sports teams do not fit neatly intotraditional models of industrial structure .... NFL teams are a hybrid form of economic animal -both business rivals and partners. Unlike other industries, the success of each member of the profootball industry depends, to a considerable extent, upon the success of all other members." Id. at189).246 See Raiders, supra note 237, at 1381.247 Id. at 1391. See also Chicago Bd. of Trade v. United States, 246 U.S. 231 (1918). (JusticeBrandeis, who articulated the test that has been uniformly adopted in evaluating a restraint under the"rule of reason," stated, "[tlhe true test of legality is whether the restraint imposed is such as merelyregulates and perhaps thereby promotes competition or whether it is such as may suppress or evendestroy competition." Id. at 238).248 Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988).'49 See Raiders, supra note 237, at 1391.m See id.251 See also National Soc. of Prof I Eng'rs v. United States, 435 U.S. 679, 690 (1978).252 See also Times-Picayune Publ'g Co. v. United States, 345 U.S. 594 (1953) (stating that aplaintiff need not allege an intent on the part of co-conspirators to restrain trade if the purportedconspiracy has an anti-competitive effect).253 See also Town of Concord v. Boston Edison Co., 915 F.2d 17, 21-22 (1 Cir. 1990) (stating thatan agreement injures competition when it obstructs the achievement of one or more basic goals of

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Several reasons have been raised for banning public corporateownership/ community ownership in professional sports. Former NFLCommissioner Pete Rozelle stated that this form of ownership would make it"impossible for the NFL to maintain control of the League."2 54 Rozelle wasconcerned that public/community ownership would divide control of a teamamong thousands of individuals making it "difficult, if not impossible," for theNFL to control who owned the franchise.255 Additionally, the formerCommissioner claimed that this form of ownership could make the effectivemanagement of a team difficult by creating a conflict between the interests ofthe team's shareholders and those of the NFL.256

However, prohibiting this form of ownership could be problematic forthe NFL because they are essentially limiting who may compete for ownershipof an NFL franchise and this could violate the Sherman Act.257 The Sullivancourt discussed how restricting all sales of a particular type of ownershipinterest, such as public/community ownership, could compromise and hurt "theentire competitive process for the buying and selling of a club ownership. 258

While there is a blatant intent to harm competition, the Sullivan Court stated thatwhether the NFL's policy of prohibiting public/corporate ownership actuallyinjures competition is ultimately a question of fact at the trial.259

The Sullivan court found that the NFL's public/community ownershipprohibition potentially harms two types of consumers: 1) individuals who wantto purchase stock in an NFL franchise; and 2) franchise owners, such asSullivan, wishing to obtain investment capital in the market for publicfinancing.260 As a result, the League's prohibition of this form of ownershipdeprives fans by basically restricting "the output of a product- a share in an NFLfranchise., 26' One can look to the successful public offerings of the NBA'sBoston Celtics in 1986, the NHL's Florida Panthers in 1996, and MLB'sCleveland Indians in 1998 to see examples of the high level of fan interest inbuying ownership in professional sports teams.262 As a result, the NFL'sprohibition policy injures competition in the relevant market by causing themarket to be "unresponsive to consumer preference. 263

Furthermore, at trial, it's quite likely that a jury could find that theNFL's prohibition of public/community ownership hinders efficiency in the

competition, including, lower prices, increased output, an preventing more efficient productionmethods in the relevant market).254 See Corporately Yours, supra note 99, at 15.

2' See id.26 See id.257 See Sullivan, supra note 98, at 1100.258 See id.259 See id.260 Seeid at 1101.261 See id.262 See Sandra Livingston and Zach Schiller, National Stock Plan is Jacobs'Double Play:Indians

Owner Gets Millions with No Loss of Control, PLAIN DEALER (CLEVELAND), Apr. 20, 1998, at IA.263 See Board of Regents, supra note 235, at 87.

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relevant market and in the League. 264 The NFL hinders efficiency by"preventing certain highly skilled and experienced individuals from owningteams," where such individuals may not have the resources to buy a teamprivately. 265 Additionally, the policy does not allow for certain types ofmanagement structures, which may be more efficient and also produce higherquality teams than the current teams in the League.266 Moreover, history showsthat increased access to capital can play a significant role in improving a team'soperations and performance.2 67 With the NFL's policy prohibitingpublic/community ownership restricting access to capital, the NFL franchises'ability to be competitive is limited.268

However, while community ownership may be necessary for somefranchises in professional sports leagues, many believe that by itself it is an"insufficient remedy" for the problems currently faced.269 The NFL, forexample, is a revenue-sharing league, where all network television income,which is in the billions, is shared equally among the thirty-two teams.270 Inaddition, revenues from the sale of game tickets are split 60/40 between thehome and visiting teams, respectively.271 But non-ticket, luxury-box stadiumrevenue is the main exception to this revenue-sharing system.272 It is quitelikely that the Green Bay Packers, the quintessential example of communityownership in professional sports, would not have survived without the NFL'srevenue-sharing policy. 273

The three other major professional sports in the U.S. and Canada -baseball, basketball, and hockey- are often tied to "the fortunes of their ownersand the skybox-revenue generating capacity of their stadiums. 274 In recentyears, many of the most successful and victorious teams in these leagues havehad the largest payrolls and new stadiums built for them.275 However, as thesesame large-market teams continue winning, the small-market teams oftenstruggle and usually are not as successful. As a result, fan enthusiasm erodesand this often hurts the league's financial vitality. 276 Many believe that forbaseball, basketball, and hockey to maintain a high level of competitiveness,"small-market vitality," and fan support throughout the world, these leaguesmust adopt a revenue-sharing plan that is similar to the NFL's. 277

2' See id at 85.265 See Sullivan, supra note 98, at 1101-02.2 See id at 1102.267 Dave Anderson, Jones Successfully Buys NFL Crown, DALLAS MORNING NEWS, Jan. 29, 1996,at B4.268 See Sullivan, supra note 98, at 1102.269 See Kraker and Morris, supra note 178, at 43.270 See Ostfield, supra note 81, at 604.271 See id.272 Sanjay Jose Mullick, Browns to Baltimore: Franchise Free Agency and the New Economics of

the NFL, 7 MARQ. SPORTS L.J. 1, 16 (1995).273 See Kraker and Morris, supra note 178, at 43.274 See id.275 See id.276 See id.277 See id.

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In 2002, Major League Baseball took some steps towards implementinga revenue-sharing plan. The most important aspect of the Collective BargainingAgreement that was reached between baseball players and owners on August 30,2002 was the revenue-sharing plan.178 This plan requires MLB teams to share34% of their locally generated revenues, which was an increase from 20% in theprevious agreement. §9 This money will be divided equally among the 30 MLLBfranchises and is intended to help the middle-market teams. 280 While the ownersare not required to use all of this money on player salaries, MLB CommissionerBud Selig has the power to impose sanctions if the teams attempt to pocket theirrevenue-sharing payments without improving the franchise.28'

However, revenue-sharing alone will not force or create a largerincentive for sports franchises to remain in the same community. This isbecause since revenue from corporate suites, club seats, and various otherstadium sources are excluded from the revenue-sharing plan, owners often "feelcompelled to demand new stadiums" with more and larger skyboxes. 282 Whenthe Cleveland Browns left Ohio for Baltimore in 1995, a compromise wasreached enabling Cleveland to retain the Browns name and the NFL promisedCleveland that it would receive an expansion team within three years.283 Such acompromise could be the third component, combined with communityownership and revenue-sharing, of a comprehensive solution to the ownershipproblems in professional sports.2 4

Under such a compromise, while franchises would have the freedom tomove, the league will be penalized if teams do relocate. 28 5 For example, if LosAngeles and Cleveland were granted expansion franchises when their teams left,each NFL team's share of the League's total revenue would decrease because ofthe two additional teams joining the League.286 By moving their teams toincrease short-term revenue, the owners of the Los Angeles Rams and theCleveland Browns will decrease the average value of NFL franchises in the longrun.28 7 Therefore, owners must weigh the short-term benefits of relocationagainst the long-term financial advantages of league stability and assess whatwould be best in these circumstances.288

D. Application of Community Ownership to Major League Baseball

In applying the advantages and disadvantages of community ownershipto Major League Baseball's teams currently facing the threat of contraction, it is

278 See Simpson, supra note 4, at 7.279 See id.28 See id.281 See id.282 See Kraker and Morris, supra note 178, at 43.

2" See id.2 See id.2 See id.2' See id.28' See id.

See id.

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important to understand that such a form of ownership could be quite beneficialfor these struggling franchises. Community ownership in Major LeagueBaseball would provide these struggling franchises with a better opportunity tocontinue their operations because the community would have a rooted interest insupporting and operating the team. Moreover, these franchises could look to theGreen Bay Packers and a few minor league baseball teams for examples ofsuccessfully operated community-owned teams.

Even more important is the fact that if contraction occurs, it will hurtbaseball's bottom line, thus demonstrating the need for community-ownedfranchises. 289 According to 1999 statistics, if Montreal and Minnesota, theLeague's two smallest revenue-producing teams, are eliminated and theremaining "revenue pie" is divided twenty-eight ways instead of thirty ways, itwill only increase each team's split of revenue-sharing by about $2 million,which is equivalent to the average salary of a single player.290 Furthermore,eliminating those two teams will be expensive because it will cost at least $250million, or about $9 million per remaining team, to buy out the two major leagueownership groups along with their minor league team owners.29

1 As a result,contraction will be a "money loser" for each remaining team for at least the nextfew years and the League.292

Throughout their franchises' history, there is evidence that communityownership could be a success in Florida, Minnesota, and Montreal. SouthFlorida, where the Florida Marlins are located, is a large market with a strongLatino population base who are more inclined to follow baseball than fans inmost metropolitan areas.293 Combine this strong Latino population base with thelarge number of retirees from other states where interest in baseball is high, it isquite likely that these fans would have a strong desire to invest in the Marlins.Additionally, in 1997, when the Marlins won the National League Wild Cardand then went on to win the World Series, the franchise had the fifth-largestattendance in all of Major League Baseball. 294 Today, the team has strongyoung talent and it is likely that they will be competitive in the very near future.So there is a definite upside to investing in the Florida Marlins. 295 The marketdemographics of the talent rich Marlins are major reasons why communityownership could be a success in Florida.

Despite being near the bottom of most revenue rankings and totalpayroll, the Minnesota Twins were in first place during much of the 2001 seasonand won the American League's (AL) Central Division along with advancing tothe AL Championship Series in 2002.296 These highly successful results

289 Chris Isidore, No Gain in Contraction Pain (Nov. 6, 2001), athttp://www.money.cnn.com/2001/11/06/news/column sportsbiz/index.html.290 See id.29' See id.292 See id.293 See id.294 See id.295 See id.

29 See Simpson, supra note 4, at 33.

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definitely hurt the argument that they cannot compete and should therefore beeliminated from baseball.297 Furthermore, a 78% increase in attendance in 2001due to the team's success coupled with their low payroll brings claims that theyare operating with significant losses into doubt. 298 Additionally, the Twins werethe first American League franchise to ever draw 3 million fans in a singleseason and in the period from 1988 through 1994, they had a larger attendancethan the large-market and highly successful New York Yankees.29 Minnesotawas also World Series Champions in 1987 and 1991, which serves as anotherindication of the franchise's success.3° Moreover, some supporters of theTwins organized a group called Fans Answer to New Stadium (F.A.N.S.), whichis "devoted to pursuing community ownership of the Twins," so there is definitesupport amongst the fans for such a ownership structure in Minnesota. 301 As aresult, with Minnesota's high level of fan support and history of success on thefield, it is quite likely that the community would invest in the Twins and allowthe franchise to remain in Minnesota.

Due to ownership problems, Major League Baseball took over theoperations of the Montreal Expos in February 2002 and the League currentlyowns the franchise.30 2 However, community ownership would definitely be avalid and beneficial option for this team. As recently as 1982, the team wasamong the league leaders in attendance drawing 2.3 million fans, so there issome evidence of fan support in the city of Montreal.3 °3 Furthermore, theCanadians, the city's NHL team, are immensely popular among the fans andhave sold out crowds at their arena regularly throughout their long history.Clearly, Montreal fans are interested in supporting their teams. Additionally,throughout the Expos' history, they have had highly competitive, talent richteams, including in the 1994 MLB strike-shortened season when they finished infirst place and were favorites to make the World Series. Unfortunately, in theseasons after 1994, financial difficulties forced the team to rid themselves oftheir talented veteran star players in trades for unproven minor leaguers and as aresult, attendance significantly dropped. 30 4 However, if a community ownershipstructure had been in place at this time, it is quite likely that many of the players

297 See Isidore, supra note 289.298 See id299 Chris Isidore, Contraction Built on Myths (Nov. 23, 2001), at

http://www.money.cnn.com/2001/ 11/23/news/column-sportsbizlindex.html.1oo See Simpson, supra note 4, at 26.301 Brad Zellar, The Bleacher Bum's Don Quixote (Sept. 9. 1998), athttp://www.citypages.com/databank/l9/927/article6002.asp. Significantly, the group's communityownership model received legislative backing from two Democratic legislators State Senator EllenAnderson of St.Paul and Representative Phyllis Kahn of Minneapolis, who have long advocatedcommunity ownership of the Twins. See id. State Sen. Anderson says, "Community ownership isvery different than the other ownership proposals on the table. First of all, it helps fans play a part inthe process. It gives them ownership, literally and figuratively. It creates a structure that guaranteesthe Minnesota Twins will stay in Minnesota." See Lawmakers: You Can Own the Twins, supra note173.302 See Simpson, supra note 4, at 17.303 See Isidore, supra note 35.3 See Simpson, supra note 4, at 17.

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would remain because the fans approved and enjoyed watching the Expos playduring this period. Additionally, in 2002, the team was in contention throughoutmuch of the season to win the National League East or possibly a Wild Cardspot.30 5 Young talent combined with a history of good fan support are reasonswhy a community ownership structure would interest Montreal.

Granted, some argue that cultural differences in Montreal and Canadaas a whole are another factor working against the citizens supporting a MajorLeague Baseball team.3 °6 However, one only needs to look towards theCanadian Football League, where three of the League's teams successfullyutilize community ownership structures to operate their franchises.30 7 Thesethree community-owned teams are more successful than those that are owned byprivate investors. 30 8 Additionally, these teams have been "fan-owned" sincebefore 1950, so for greater than fifty years, these teams have been supported byfans throughout Canada.30 9 Furthermore, as already mentioned, the MontrealCanadians also had a long history of immense fan support. There's been muchdiscussion of moving the Expos to Washington, D.C., where a major leaguestadium is available to play in, or to a Northern Virginia suburb, where a newpark would need to be built.310 But, MLB's Baltimore Orioles have vowed toveto a move to this, their, area. Also, in today's fluctuating economy, it'stougher to "find examples of municipal largess in the construction of newstadiums. 33 ' Consequently, a community ownership structure deserves anopportunity to attempt to turn around the struggling Expos and keep them inMontreal.

However, the franchises in Florida, Minnesota, and Montreal do facesome obstacles that must be overcome before a community ownership structurecan be successfully implemented. First, Major League Baseball's prohibition onfan ownership must be overturned.31 2 Legislative acts, such as the Give Fans aChance Act (HR 590), would accomplish the goal of overturning baseball'sprohibition of fan ownership. 313 This bill forbids any of the professionalleagues, MLB, NBA, NFL, and NHL, from prohibiting community ownership,and would withdraw the leagues' antitrust privileges if the fans were prohibitedfrom owning a franchise.31 4 Additionally, the bill requires teams to provide theircommunities with 180 days notice of proposed relocation, durin§ which time thecommunity can put together an offer to retain the franchise. 3' This bill alsorequires that leagues consider factors, such as fan loyalty and whether the

305 See id.306 Chris Kahrl, The Daily Prospectus: Contraction Action (March 7, 2001), athttp://www.baseballprospectus.com/news/20010307daily.html.307 See Kraker and Mortis, supra note 169."s See id3 See id310 See Isidore, supra note 35.311 See id.312 See Kraker and Morris, supra note 169.313 See id.314 See id.31 See id.

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community is opposed to the relocation, before approving the relocation of afranchise.

3 16

Moreover, Major League Baseball needs to continue enhancing therevenue-sharing agreement for community ownership to be a success. Thegrowing consensus among MLB owners is that greater revenue-sharing is "amust for the overall well-being" of baseball.317 Bob Costas, NBC's award-winning sports broadcaster, says, "the single most important factor for ensuringbaseball's success in the future is for the sport to embrace a morecomprehensive revenue-sharing plan."318Granted, the League did enhance theAgreement with the Collective Bargaining Agreement reached on August 30,2002 by requiring teams to share 34% of their locally generated revenues.31 9

This agreement runs through December 19, 2006, so it will be interesting to seeif it is successful in allowing middle and small market teams to attain financialstability.

320

Major League Baseball can look towards the NFL's revenue-sharingplan, which "distributes revenues from merchandise sales, broadcasting, and aportion of gate receipts evenly among all teams." '321 This plan has beensuccessful in allowing small-town teams to survive. The NFL understands thatmedia revenue comes largely due to the parity that the League has achievedsince revenue sharing.322 For the most part, such parity has not occurred inbaseball because teams, such as the Yankees, with the largest payroll usuallywin.32 3 The NFL, on the other hand, is more competitive due to its revenue-sharing plan. This allowed more franchises an opportunity to win, as evidencedby the recent various Super Bowl Champions. Major League Baseball canemulate such a plan to assist financially struggling franchises, such as theFlorida Marlins, Minnesota Twins, and Montreal Expos, while allowing for thefans to have an ownership role in the teams.

Additionally, Major League Baseball could implement a plan similar tothat of the NHL to assist the Montreal Expos. In an effort to stop franchisesfrom relocating from Canada to the U.S., the NHL created a revenue-sharingplan that was designed to reimburse Canadian teams for the currency imbalancebetween the two countries.324 Funds for this Canadian plan come from theleague-generated television, licensing, and sponsorship revenues. 3

25 To qualifyfor this plan, the Canadian hockey teams must be in the bottom half of leaguerevenues and have revenues that are at least 80% of the league average.326 If thefranchises do not meet these criteria, they could qualify instead by selling a

316 See id.317 BOB COSTAS, FAIR BALL: A FAN'S CASE FOR BASEBALL 192 (Broadway Books 2001).318 See id. at 63.319 See Simpson, supra note 4, at 7.320 See id. at 8.321 See Kraker and Morris, supra note 169.32 See id.323 See id.324 See Much, supra note 1, at 210.325 See id.326 See id.

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defined number of season tickets, luxury suites, and dasherboards.327 Such aplan combined with community ownership could be a way of financiallyreviving the Expos.

VI. CONCLUSION

Of the four different ownership structures in domestic and internationalprofessional sports leagues - -public company, community-based, private, andsingle entity- - it seems as if community-based ownership would workextremely well in helping to prevent contraction from occurring in MajorLeague Baseball. In MLB's current situation, public ownership by publicly heldcorporations along with private ownership is simply ineffective at alleviating thefinancial difficulties faced by some of the franchises. Alternatively, ownershipof all the teams, single entity ownership, by Major League Baseball would beextremely impractical because it would require the League to buy back all of theteams from the current owners, something very few baseball owners are likely toallow. Single entity ownership is more appropriate for newer, upstart leagues,such as Major League Soccer (MLS), where the League is the employer of all itsplayers as opposed to individual owners.328 Therefore, one must look towardscommunity ownership for solutions. One of the most significant advantages ofcommunity ownership is that it would "remove the monstrous egos andnineteenth-century capitalistic mentalities of existing ownership from the game"of baseball.329

Taking into account all of the litigation costs and the buy-out costs ofthe major and minor league teams, along with the negative impact on fans andplayers, contraction is a potentially disastrous approach to solving and helpingalleviate financial problems that domestic (Florida Marlins, Minnesota Twins,and Tampa Bay Devil Rays) and international (Montreal Expos) baseball teamsare encountering. 33 Professional sports franchises should be "regarded aspublic utilities rather than as pieces of private property, and they should beregarded as a public trust.",331 Therefore, Major League Baseball must overturnits prohibition on community/fan ownership, and allow the fans to makeinvestments to keep their teams in their community. This would create morefranchise stability, a goal of the league.332 The three essential elements tokeeping teams rooted in the same city are "community ownership, a revenue-sharing plan ensuring league-wide competition and the vitality of small-market

327 See id328 Fraser v. Major League Soccer, 97 F. Supp.2d 130, 131 (D. Mass. 2000); Paul D. Abbott,Antitrust and Sports-Why Major League Soccer Succeeds Where Other Sports Leagues Have Failed,8 SPORTS LAW. J. 1, 3 (2001).329 Richard C. Crepeau, If! were Commissioner, SPORTSJONES MAGAZINE (July 8, 1998), athttp://www.sportsjones.com/sport&society3.html.330 See Noll, supra note 29, at 9.331 See Crepeau, supra note 329.332 See Much, supra note 1, at 27.

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teams, and a form of mandated expansion in the future for cities whose teamowners move in the face of demonstrated fan support. 333 Communityownership, combined with effective revenue-sharing, will prevent teams fromleaving home in Major League Baseball along with saving taxpayers substantialamounts of money by protecting fans and taxpayers from owners who bid theirteam out to the city that offers the best stadium and the biggest subsidy.334 Inthe end, community/fan ownership could very well be the solution that MajorLeague Baseball has been searching for to allow its struggling franchises tobecome successful teams.

333 See Kraker and Morris, supra note 169.334 See Kraker and Morris, supra note 178, at 38.

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